BRRRR Tax Lien Deal Analysis Feedback Wanted

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BRRRR Tax Lien Deal Analysis Feedback Wanted

Peter Rowell
Albany, NY · Member since 2016 · 32 posts · 12 votes

Hi Everyone!

My wife and I are closing in on a year of our house hack in Albany, and are looking to expand across the river with a BRRRR tax lien deal in Troy. I've been running some numbers and lining up financing through personal lines of credit and 0% credit cards, but would love to get some feedback on potential rehab costs as this is not my area of expertise.

The property is a 3 unit which I am bidding on through the city of Troy's tax lien foreclosure program. The scariest part and biggest unknown is that I cannot see the property beforehand and because of this, I am factoring in all possible costs for the rehab. The numbers include hiring out any plumbing, electrical, roofing, or window repairs and doing the remainder of work myself. 

The quick and dirty stats are as follows:

Overall Numbers

Bid Price - $25,000

Estimated ARV - $160,000

70% of ARV - $112,000

Rehab Costs - $99,900

Total Investment - $124,900

Obviously, the numbers indicate I would be leaving some of my money in the deal, but this is worst case scenario. 

Rehab Costs

My biggest concern is being way off on the estimates. I know the odds of getting an estimate right on are slim (especially for someone like me with limited rehab experience) but I would appreciate anyone who could give an opinion on the below estimates and see if they are in the ballpark.

For context, the building is a 3 story 3 unit built in 1894 and approximately 4300 SQFT.

AreaRateUnitNumber of UnitsTotal Estimate
Overall0
Heating$6,000Per System3$18,000
Plumbing$10,0001$10,000
Electrical$10,0001$10,000
Drywall$1.00Wall SQFT4000$4,000.00
Demo$1SQFT4000$4,000
Paint$0.30Wall SQFT8000$2,400.00
Roof$6SQFT1500$9,000
Floor$3SQFT3500$8,750
Hot water$1,000Per System3$3,000
Windows$300Per Window20$6,000
Kitchen
Stove$500Each3$1,500
Dishwasher$500Each3$1,500
Fridge$800Each3$2,400
Sink$200Each3$600
Countertop$1,000Each3$3,000
Cabinets$2,000Each Kitchen3$6,000
Tile Floor$500Each Kitchen3$1,500
Bathroom
Toilets$200Each3$600
Vanity$250Each3$750
Tub$300Each3$900
Shower Tile$500Each3$1,500
Floor Tile$500Each3$1,500
Other
Washer/Dryer$1,000Combo3$3,000
Total Rehab $99,900.00

Any advice would be greatly appreciated! I would much rather have my plan ripped to shreds now that 5 months from now while I am in the middle of a rehab. 

1Reply
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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
9y

@Peter Rowell first and most important, do you know what the rules are of "the city of Troy's tax lien foreclosure program"?  If you are buying a tax lien, you have to foreclose before own the property. If the city of troy has already foreclosed on the property for back taxes, you need to understand whether you get clear title,

Since it is an 1894 building, you have a risk of greatly outdated systems. You also have a risk of an outdated layout. You have included nothing for framing. 

You are estimating 4000 sq ft of drywall for a 4300 sq ft building. Remember the Sq footage of the building is the floor space, not the wall space. Walls and ceilings will total min. 2 or more like 3-4 time the sq footage of the floors. 

You have also included nothing for demolition. In my area that could be $5,000

When I am evaluating a property i am going to bid on in tax sale. I asses the outside condition and then figure - What is the most probable worst case scenario?  What I  mean by that is the worst case scenario for a house build 5 years ago is likely much different than the worst cast scenario of a dilapidated house built in the 1890s

Windows are generally the first thing that gets replaced when someone wants to update their house. So if a property looks weak and has old wood windows with chipping paint. I know the entire house is a full gut job. If it has new vinyl windows, new front door and other wise looks sound on the outside I assume it needs a full cosmetic upgrade and updating the systems as necessary. If it looks like it was fully rehabbed in the last 10 years I assume it needs a full cosmetic upgrade. 

The above are generalizations and don't work all the time but I buy enough volume that it averages out pretty well. This is for Baltimore even a nice house has likely had its copper plumbing stolen. You need to adjust your assumptions based on your area.

Oops Correction: I now see where you did include demo costs.

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10 Replies

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  • Brian Degener
    Wholesaler · Delmar, NY · Member since 2016 · 83 posts · 9 votes
    9y

    You have to get in, when you are new you think when they say dont go in you cant. When its your money on the line, you find a way to get in.

    1Reply
  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    Howdy @Peter Rowell

    There is no way to get a sufficient Rehab estimate without getting into the property.  You definitely will need to have the property inspected.  I would also have a GC walk the property to give you a bid.  This is a very old property.  There can be lots of hidden problems.

    You did not include Holding and Closing costs in your Total investment numbers.  What is your estimated Rehab period?  3 months? 6 months?  Longer?  You will need to make monthly payments on any credit cards and personal loans you use.  You also will need insurance to cover the property.   At some point you will have utility expenses.  All contribute to your Holding costs.  There will be Closing costs at acquisition and possibly when you refinance.

    You must account for other miscellaneous Rehab costs too.  Port-a-potty for contractors.  Dumpster rental for debris removal.

    The only Rehab estimate you can do is dealing with the exterior areas.  Roof, Siding, Landscape, driveway and walkways.  Some of these you did not include.

    If I can't get a look at the inside, I would not want this to be my first BRRRR deal. Too much can go wrong.

    0Reply
  • Peter Rowell
    OP
    Albany, NY · Member since 2016 · 32 posts · 12 votes
    9y

    Thanks for the replies guys!

    @Brian Degener I have walked by the property and tried to peak inside, but it looks like it is pretty well locked up. Short of busting out a window, I don't think I would be able to get in, but I'll keep looking for other options.

    @John Leavelle I have the holding costs at a maximum of $2,500 a month and that is if all credit cards and personal loans are maxed out. Between my wife and my salary, we are able to cover this cost with a reasonable buffer. Rehab period would likely be around 6 months, but then again I don't have a ton of experience so it is tough to tell. 

    However, the more I think about it, the more I agree with you that this shouldn't necessarily be my first BRRRR deal. I am always fighting the urge of complacency thinking I should be going after a deal, I just need to make sure that impatience doesn't lead me to make a bad decision.

    1Reply
  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    9y

    Are all of these costs supposed to include labor? I don't think you can pay $200 for a toilet installed or pay $500 to put down a tile floor.

    $10k for plumbing? What if all the copper has be stolen from this property?

    Have you run these numbers by a contractor? Even if he hasn't seen the property, he can give you a sense check?

    Why can't you see the property beforehand? Drive on over there. Is it occupied? Now, I would never suggest you trespass or illegally enter a property that you don't own...but I bet you can get a lot of info from the curb. Which reminds me, you don't have anything in the budget for the outside of the house.

    Good luck!

    1Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    @Peter Rowell first and most important, do you know what the rules are of "the city of Troy's tax lien foreclosure program"?  If you are buying a tax lien, you have to foreclose before own the property. If the city of troy has already foreclosed on the property for back taxes, you need to understand whether you get clear title,

    Since it is an 1894 building, you have a risk of greatly outdated systems. You also have a risk of an outdated layout. You have included nothing for framing. 

    You are estimating 4000 sq ft of drywall for a 4300 sq ft building. Remember the Sq footage of the building is the floor space, not the wall space. Walls and ceilings will total min. 2 or more like 3-4 time the sq footage of the floors. 

    You have also included nothing for demolition. In my area that could be $5,000

    When I am evaluating a property i am going to bid on in tax sale. I asses the outside condition and then figure - What is the most probable worst case scenario?  What I  mean by that is the worst case scenario for a house build 5 years ago is likely much different than the worst cast scenario of a dilapidated house built in the 1890s

    Windows are generally the first thing that gets replaced when someone wants to update their house. So if a property looks weak and has old wood windows with chipping paint. I know the entire house is a full gut job. If it has new vinyl windows, new front door and other wise looks sound on the outside I assume it needs a full cosmetic upgrade and updating the systems as necessary. If it looks like it was fully rehabbed in the last 10 years I assume it needs a full cosmetic upgrade. 

    The above are generalizations and don't work all the time but I buy enough volume that it averages out pretty well. This is for Baltimore even a nice house has likely had its copper plumbing stolen. You need to adjust your assumptions based on your area.

    Oops Correction: I now see where you did include demo costs.

    3Reply
  • Sebastian E.
    Flipper/Rehabber · Berkeley Springs, WV · Member since 2017 · 164 posts · 103 votes
    9y

    Thanks @Ned Carey for that explanation.

    0Reply
  • Brad Cogswell
    Investor · San Francisco, CA · Member since 2016 · 77 posts · 41 votes
    9y

    @Peter Rowell even if (and that's a big IF given you haven't been able to view the property), if everything goes exactly according to plan with a $100k rehab and a holding period of 4 months, you are still only looking at about $20k in profit when you factor in selling commissions, closing costs, etc. That's without any costs to foreclose. For some that's reasonable, but given this is your first flip I would look for more cushion in case something goes wrong here.

    2Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    Good point Brad. I was assuming he was doing this as a buy & hold because it was a multi unit.

    0Reply
  • Peter Rowell
    OP
    Albany, NY · Member since 2016 · 32 posts · 12 votes
    9y

    @Jaysen Medhurst Some items I would hire out and some I would do myself. The items I would do myself simply reflect materials costs. Apologies that it was not clear.The $10k for plumbing is a guess. I don't have a good idea of what it might be which unfortunately makes my numbers a bit less accurate. The property is being sold by the city and is done through a blind bid process without entry available to the homes. They ask you for a plan for the property and estimated rehabilitation costs. When I called the city and asked how can you estimate costs if you can't enter the property, they gave me an "oh yeah, that doesn't make much sense", but didn't elaborate beyond that.

    @Ned Carey It is my understanding that the city has already foreclosed on the property and that the title is cleared upon transfer of the title. I had a friend who bought a property this way and this is what he indicated to me. The drywall was based on the assumption that it would not have to be all ripped down, but if I am truly looking to go worst case scenario, you are correct I need to add additional square footage.

    @Brad Cogswell The property would be a buy and hold investment. 

    I really appreciate all of the input guys! This is why I keep coming back to this site. The more feedback I get, the more I am starting to realize this may be over my head for my first real rehab deal. I think I may add the ability to actually view the property to my criteria, at least for my first couple of deals as it is very difficult to get accurate numbers without having a contractor walk the property with me. 

    0Reply
  • Brad Cogswell
    Investor · San Francisco, CA · Member since 2016 · 77 posts · 41 votes
    9y

    Ah got it @Peter Rowell , sorry I misunderstood I saw the ARV figures and just assumed.

    0Reply
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